Think Fed Statement Didn’t Mention Brexit? Look Again

By Amey Stone

The words “Brexit,” “referendum” or “United Kingdom” were not in the Federal Reserve’s July policy statement, released Wednesday.

But Brexit was still a topic in the statement nonetheless, say fixed-income experts.

First of all, the statement did say the Fed would continue to monitor “global economic and financial developments,” points out John Bellows, portfolio manager with Western Asset Management. “Some part of that is Brexit.”

More important, the key phrase that surprised investors — “near-term risks to the economic outlook have diminished” — is also code language for “Brexit has passed and it didn’t create too much turmoil,” says Kathy Jones, chief fixed income strategist at Charles Schwab.

Bellows says “near-term” is a key word in that phrase. The mention of diminished near-term risks means the Fed is still “cognizant of long-term risks,” says Bellows. “Brexit is is likely one of the long-term risks it is silent on.”

Amey Stone is Barron’s Income Investing blogger and Current Yield columnist. She was formerly a managing editor at CBS MoneyWatch, MSN Money and AOL DailyFinance. Her responsibilities included overseeing market coverage and personal finance topics. Prior to those roles, she was a senior writer at BusinessWeek where she authored the Street Wise column online and contributed to the magazine’s Inside Wall Street column. Topics covered included economics, corporate finance, Fed policy, municipal bonds, mutual funds and dividend investing. She co-authored King of Capital, a biography of Citigroup Chairman Sandy Weill. She is a graduate of Yale University and Columbia University’s Graduate School of Journalism.